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Edited version of private ruling
Authorisation Number: 1011548202972
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Ruling
Subject: Capital gains tax (CGT) - cost base, calculation and elements
1. Is a capital gain made on the disposal of the land greater than two hectares calculated by subtracting the cost of the land from the capital proceeds received on disposal of the land?
Yes.
2. Are the costs of holding and maintaining your land that have not been claimed as a deduction, included in the cost base of the land?
Yes.
This ruling applies for the following period
Financial year ended 30 June 2010
Relevant facts
You purchased a property with your friend.
The size of the property was greater than two hectares.
Your friend passed away and left you their share of the property.
You utilised the property as your main residence for a number of years period year until you rented it out.
You made the choice to continue to treat the dwelling as your main residence after you vacated it.
You sold the property after a period renting it out (it was rented for less than six years).
You believe you made a capital gain on the disposal of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997- Subsection 110-25(1)
Income Tax Assessment Act 1997- Subsection 110-25(4)
Income Tax Assessment Act 1997- Subsection 110-45(1B)
Income Tax Assessment Act 1997- Subsection 104-10(1)
Income Tax Assessment Act 1997- Section 102-20
Income Tax Assessment Act 1997- Section 102-22
Income Tax Assessment Act 1997- Section 104-10(1)
Income Tax Assessment Act 1997- Section 115-5
Income Tax Assessment Act 1997- Section 115-20(1)
Income Tax Assessment Act 1997- Section 114-1
Income Tax Assessment Act 1997- Section 108-5
Income Tax Assessment Act 1997- Section 118-115
Reasons for decision
Question 1
Summary
The capital gain on your land that is greater than two hectares is calculated by subtracting the cost of the land from the capital proceeds received on disposal of the land.
Detailed reasoning
You make a capital gain or capital loss if a CGT event happens. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. You make a capital loss if your CGT asset is greater than the capital proceeds.
The main residence exemption extends to a maximum of two hectares of adjacent land that is used primarily for private or domestic purposes (including the land on which the building is situated).
The main residence exemption can be applied to whichever area of land you choose.
If your selected area of land can be separately valued, you calculate your capital gain or loss on the remainder of your land by apportioning the capital proceeds and the cost base or reduced cost base (if applicable) on the basis of the valuation. This is relevant if the value of the remainder of the land is of a greater or lesser value than your selected area of land.
If your selected area of land cannot be separately valued, you calculate your capital gain or capital loss on the remainder of your land. This may be calculated by apportioning the capital proceeds and the cost base or reduced cost base (if applicable) on an area basis.
The amount of capital gain or loss attributable to the land must be reasonable in the circumstances.
Question 2
Summary
The costs of holding and maintaining your land that have not been claimed as a deduction are included in the cost base of the land.
Detailed reasoning
The costs of owning an asset include rates, land taxes repairs and insurance premiums, interest on borrowing to finance a loan used to acquire a CGT asset and on loans used to finance capital expenditure you incur to increase and assets' value. These costs are included as third element costs.
You do not include such costs if you:
· have claimed a tax deduction for any income year, or
· omitted to claim a deduction but can still claim it because the period for amending the relevant income tax assessment has not expired.
You cannot index these costs or use them to work out a capital loss.
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